Lewis Explains The Casino: "Why Are You Even Arguing" That This Is Not Rigged?

Round 2 of the HFT vs Reality death match just took place on Bloomberg TV. Once again the clear winner was Katsuyama and Lewis version of the real world as Manoj Narang finally lost all credibility with the mind-0bumbing comment that "speed matters less in today's market than it has ever mattered." But the Tradeworx CEO was a background singer compared to Michael Lewis who explained in his clearest analogy yet how the casino works and then devoured the anchor's constant efforts to play down the "rigged" market perspective... "it's very clear that people are being front run in the market... so, why are you even arguing about this?"

Plenty of good stuff in the clip but this little exchange summed up the problem perfectly...

Lewis explains the game, exposes the rigging, and slams the mainstream media's "defense" of this...

LEWIS: So of course the tourists get fleeced all the time in the poker games, because they don't know the deck is rigged. The poker players pay the casino a cut of what they make. The casinos, operators, pay the tour group - the tour group company money to bring in the tourists.

So in this case, casino's the exchange, the poker players are the high-frequency traders, and the tour group operators are the banks and the brokers that handle the stock market orders. And I think the analogy is pretty close. So is that rigged? Is that a rigged game? I think it is a rigged game.

SCHATZKER: Well, it's rigged only inasmuch as...

LEWIS: Why are you so invested in the idea this is fair? Why are you even arguing about this? It's so clear.

SCHATZKER: Me?

LEWIS: Yes, you seem to be. I mean, it's very interesting. But you seem to be - you can see, it's very clear that people are being front run in the market. There's plenty of evidence in the book.

SCHATZKER: Their orders are being anticipated...

LEWIS: Anticipated and run in front of, that's right.

Shocked...

And then Manoj Narang comes in... and the long words surge and the credibility plummets... "there are so many assertions that are provably false... oh my gosh so many..." crickets... and then finishes off all credibility with "speed matters less in today's market than it has ever mattered."

I put a post in the other thread, and since the story has gained traction I thought I would a little more color.

In 1999, I had discussions with a company in buildup of the infrastructure needed to get setup for HFT. This was a company in Charlotte, NC downtown surrounded by several nationwide banks. They had not completely setup the fiber infrastructure to go direct(or near direct) with CBOT at that time(yet).

The takeaway from my discussions with this early stage HFT company was "Find out where the big money was going, AND GET THERE FIRST!"

The whole business model was to employ technology to front run trades.

Look, I simply don't want any "return" on "investment". I simply want my hard earned money, when I need it. I live a modest living. I am pretty sure I can adjust with inflation. I will simply not need an item that's going up in price. Leave me alone out of all this circus. I am thro' with the stock market for good.

You say. Check it against reality: my wife is from the Phiippines, in which case I can assure you that your notion of "modest living" is NOT "modest." Not a direct attack on you, just stating the realities of the world; and, since trade is global then that means, YES, you/I/we (here) ARE comparables in the Big Pool. So, consider: there are 750 million people alone who live on $0.50/day.

"I am pretty sure I can adjust with inflation."

And how do you figure this? Do you KNOW what inflation is going to be? Are you SURE that banks and other interest returning entitites. all "low risk" necessarily offer above inflation? In my view of things "interest" is "growth." When the world's growth is collapsing then "interest" ain't going to be there. Think about it, how possible would it be for EVERYONE to jump in just one big happy low-risk interest-returning pool? Where would that "interest" come from?

"I will simply not need an item that's going up in price."

Imagine those 750 folks in India saying this. I am sure that you can figure just what it is that they could arbitrage with... (hint: it rhymes with "dood").

And the flip side would be that you would "need" things that are falling in price.

Is it a real need that you're looking to deal with, or is it some sort of trade thing?

A true "need" is something that you have to have. Perhaps if you restate with/as "want" then it works out.

Lastly, there are two definitions for inflation. The Austrian one is centered on money supply, with it being a measure of money added or removed to/from circulation. And then there's the more layman's defnition, which is based on the price of things: that meat that you used to get for $7/lb was steak, it's now still $7/lb, but it's now SPAM.

Things are changing, and fast. What you measure against might not be there tomorrow, it might be moot.

I once had my retirement path all laid out and rolling on target. Change happened. The measure changed. What I learned from this was that squirreling away a bunch of nuts isn't a sufficient enough plan: the number of squirrels is growing and the number of nut trees is shrinking (cause and effect I suppose). My thinking then shifted toward an acceptance that I would never stop working, that I would never "retire." (go through life more in a Just-In-Time mode) The whole notion of "retirement" defies humany history as well as it does in present day for the majority of the world's population. That you/I/we (here) can even contemplate "retirement" places us in an upper class position, one that is by no means "modest" when compared to the current and historical norms.

None of this should be taken to mean that I condone the existing "rigged" system, I do not. I see it all in the context of measures taken in desperation in trying to force what cannot happen: perpetual growth on a finite planet; and without that growth there's no inflation to "pay" off previous debts.

I was thinking about that cartoon I watched as a kid about "how a Bill becomes a Law" actually. ("I'm just a bill, yes I'm only a bill..and I'm sittin' here on Capitol Hill..." song.)

I mean how DARE you call this mere front running. This is running OVER your trade. Still..."gotta pay the piper" and no getting an economic recovery with all that loot means "something wicked this way comes."

All this bullshit about the FED, interest rates and tapering, was another good dip for the bulls to buy. Fancy that.

The market is crashing every 7 yeasr, and those in charge do this, these guy yelling are just moron, that do not understand the biggest picture. market crashing every 7 years in the last 20 years wow. Check it out here => http://bit.ly/1hj3Zwr It means there could be another one comes soon, if this pattern keeps up. Hmmmm

These guys are like disabled handicapped parrots with nothing to squawk about. JESUS! LOL

Rather than it being some programmed cycle/event I suggest that it might be more about a typical "product cycle," that bubbles start to form, mature and then go pop.

People need to stop playing victims. If you do not like what "THEY" do then STOP playing their game! Most of this is just whining that you cannot out-compete them at THEIR game; and, well, of course fucking not, it's THEIR game! When you stop playing the role of the victim is when you can actually take control of your life and resolve these sorts of "problems."

Yeah, it's bad and it's fucked. The reality is that nothing lasts forever.

I like Lewis and I am happy he is saying what he is saying, but this is not news to me. Every trade In the last five years, I have always paid higher and I have always sold lower than the price available on the screen. Always.

Yup, just when the focus get put on the HFTs, the "Do No Evil" Google Queers decide to split stock into two classes and halve everyone's voting rights, but their own. Hmm. Maybe they paid for the book to be written. The brass balls on those cocksuckers. They're parking their planes on our military bases and government airports, paying government prices for their fuel, fucking the US out of all taxes, and now they decide they'll just take 1/2 the voting rights.

Yes indeed. I am surprised that bigger traders sat silent knowing full well every trade was anticipated and front run by someone who stood between every order and the sell offer. You only could put in a buy order and have it filled AFTER the HFT Middle man used it's HFT to bid up the price and then hand off to you a higher price than the offer to sell was at when you clicked buy. Many big institutional investors, hedge Funders, Pension Funds and individual fund mangers were seeing themsleves fleeced on every transaction, yet it took one guy to finally get mad and research WHY this was the case. These investor people are supposed to be Masters of The Universe, smarter than all us other people, yet they acted like Gomer Fucking Pile in boot camp, too dum to hold a rifle or about face on command! Why did it take so long for HFT to be taken public and exposed on all these fake financial news channels?

the culture of investors is to just make money. period. few have ethical concerns about how. So,

Corruption? Rigged? Its just regarded as the price of admission.

And thats why its taken so long for someone to stand up for investors on a principle that would be obvious and well defended under retail sale or consumer law: The advertised price is the price you pay. full stop. If you cant devise a computer system to show on screen the price you pay, the transaction can be deemed invalid at the customer's discretion

in other words, investors willingness to earn money deceptively off others is the reason so many tolerated for so long the deception against them.

Jack you have hit the essential question. Why do company owners take all of their jobs offshore, even though they know their kids need to live in THIS country? Why do 850,000 workers have the same security clearance as Snowden but only HE speaks out? Why is the infrstructure of America falling down around us but all we buy is empty new hospitals in Afghanistan? The answer is: because we are one sick f*cking selfish society. You can't even really call it a society anymore: it's everybody for themselves and Kardashians for all.

I trade my own money very successfully for the five years i've been trading. I knew I was being front-run and used to give specific examples directly to the SEC or to my firm to request explanations from the exchanges, to which I never received a single response. I imagine this is what happened to everybody that complained. So no, not everyone is stupid or uncaring, it just takes a media spotlight to cause change. I'm not the type to invite the limelight, even though I'm the good guy in this arena. The SEC has been focused on going after easy targets for peanuts while everyday tens or hundreds of millions are stolen.

What a fucking circus. They should have simply gone on the offensive and asked the HFT guy " Forget all the other bullshit. Why is it profitable for another firm to buy the right to place a customer's order?"

No, it'll end the way it always ends. There's a "serious investigation" which finds no wrongdoing, then there's a slap on the wrist fine of a few million, followed by a rules change that makes it all totally legal because reasons. Because anything real would result in yes, some bullshit war to bury it all.

"No, it'll end the way it always ends. There's a "serious investigation" which finds no wrongdoing, then there's a slap on the wrist ..."

You might be right, but the value in this negative exposure is that it's one more grain of sand on the mountain-sized pile of fraud and theft that masquerades as a market.

If you've ever built a sand pile with your kid at the beach, you know that as you add more and more sand, at some point the pile collapses and its base enlarges. Which grain of sand causes the collapse? Who knows and it really doesn't matter.

As long as they keep adding to the fraud pile, the system will ultimately collapse just like the sand pile. And add to it the banksters surely will, because they dont know any other way--fraud to them is a way of life. It's why those douches on Bloomberg and CNBS are truly dumbfounded when someone dares to question their business "model." Hey, it's what they do. Honest banksters are like honest politicians: exceedingly rare and with short careers even when they do exist.

That is emotion speaking my friend. Reality is that they wont get away with it. These folks will still be screwing the system as it falls off the edge of the cliff - right to jagged edges below. They are parasites. They can't live without the system. The derive power from it - power that sadly we give to them as we are trapped in said system. Ironic huh?

Doesnt matter how it ends. Just that it does in fact end. You really think the world we are moving into holds a place for a bullshit-spewing big-finance assholes who have nothing really productive to offer?

Just wait though, the "thrown under the bus" part of this saga hasn't even started yet.

Oh, and don't confuse them with the real finance guys who actually connect capital to industry, help guide people's investments, balance real books, etc. ... the real services that are necessary for a modern but free civilization to advance given our current DNA/programming.

They'll be fined for stepping over the line ever so slightly (as everyone else is frimly planted right ON the line). And over time that line will shift such that today's trespassers will be tomorrow's line sitters... and we'll continue to NOT raise any question about the line moving closer to the cliff (and taking us all over).

When everything is predicated on growth, and when growth is no longer possible, you bet your ass that the line will be made to shift.

This shit would be hilarious if it wasn't for the upcoming wars to destroy all evidence.

NA

Well said indeed. I guess you could say if the people of the United States were profoundly concerned about the "rule of law" the NIST's technical presentation on the Salomon Brothers Building collapse in lower Manhattan which to use your words destroyed all evidence at the time for the SEC for frontrunners like ENRON, Worldcom, SB, GS, JP Chase etc. would have sent the appropriate parties to Federal prison including Shyam Sunder and John Gross...

If Mike Lewis was for real he would have been walking around his business circles touting Zero Hedge 4 years ago and never would have appeared on 60 minutes had he been loud enough!

The worst damage that could have been done to the U.S. economy other than 9/11 took place in the Fall of 2008 which was the nail in the coffin.

Unfortunately, having it figured out isn't necessarily a get out of jail free card when it comes to WW3. You will still be dead. The bad thing is, you will see it coming the whole way. Sometimes ignorance is bliss.

I stopped listening to the talking heads and their propaganda a long time ago - their lies are becoming more and more obvious. Soon even the most dense and "devoted" sheeple will see the propaganda for what it is and pull the hell out. As the frequency, intensity and duration of the lies/propaganda increases people wil catch on... the trick is catching it at the apex then converting your wealth into something that "can't be touch or taken"... remember, loose lips sink ships.

Reality is uncomfortable to the show clowns. If the show clowns knew anything they'd be hired away. They are cost centers, sumps until the freight paying real purpose of the channels, the commercials, come on. But now they have to walk a clown tightrope and keep the sheeple from figuring out, which won't happen; what a crap product they are sloppy serving up for the sheeple.

Problem is that they too are invested in the scam. These talking heads have egos and paychecks. they need to talk the party line to appear smart and worthy of martini toasts. This floors them as well.

So what you see is a lot of denial. "I am CNBC investment shill...how could i be so stupid?" and then off camera. head for the hills and call my broker; Oh hey can't do that? Now what the F am I going to do? Gotta do something to make my life feel real.

Ironic actually. For people who use pure speed to make money, they are pretty fucking slow on their feet. Its been a couple of days and no improvement. Its like being called a dumb ass and only being able to call that person a dumb ass... for two days straight.

+1000. Yep, it's the intent that really defines the fraud, and in this case, like so many other fraud cases, the intent is clear. This makes HFT a crime. But like so much mega dollar white collar crime, TPTB will look the other way. It's the Corzine way.

I often ponder what a fucking shame it is that an entire generation of geniuses either help Wall Street assholes steal or write code for social media websites. No furthering mankind through science or medicine. The dark ages are upon us.........

This is some serious honesty. It is criminally insane how much capital and other resources, including intellectual capital, that are wasted on selfies... I mean being social is cool and all, but there's no fucking way zuck should be worth billions. Pathetic...

Zuckerberg is just the new type of commercial front for DOD R&D now. You really think he gets to invest that money on the IPO without clearing it first through the higher ups for approved project aims. Why do you think they are buying up virtual reality goggles and drones for 'internet' coverage in places where there is no internet coverage..........

Same deal with google, twitter, etc.

These are the new public/private corporate structures to get around budget shortfalls and throw wall street into the mix to make sure that liquidity is channeled into these companies and that their valuations can't go down in an unrigged market.

Try shorting facebook and see what happens... Try it with an HFT trading platform bet you see when algos attack on steroids commence to counter and a few investigations by the SEC and FBI if you do it a couple of times in a row.

It is not his money, never was, it is their money he is nothing more than a glorified project manager and if he fucks that up then he gets to start his own institute like a Soros or Gates for them to use that money for their purposes with him being nothing more than a steward holding it getting a living stipend in the process.

He is either a sell out or a sucker depending. He is not a good steward for the future of the tech community and he should be shunned as a pariah for his actions.

Except Housing Bubble in 2008, Nasdaq Bubble in 2000, Savings and Loan crisis from 1982-1990 that included a 1987 crash that really caught fire in the form of George W. Bush's 1988 win and subsequent bail-out of the savings and loan situation at the beginning of his first and only term.

No surprise here but something is being lost in "Reality Death Match".

The book has a paradigm: "Watch what happens when I attempt to buy AMD @ $X.xx..." Thousands of offers. "<Press Enter to Execute Trade>". NO ACCEPTANCE. ZERO. In a "Real" Market (Not "Fair"), of the 1000s of offers, there MUST be one of those offers that will mark a Buyer and Seller agreeing in the Marketplace AT THE PRICE AGREED. There would then be a "Transaction" which would then be legally binding and verified. Since this did not happen, an impediment to a FREE market has inhibited trades.

This is what is now being ignored over the Lollapalooza Sound Bites and Fireworks.

If I make an offer to trade and someone on the other side agrees to this price, a FREE Market would complete the Trade.

This story is really weird. We all knew about HFT. Didn't 60 minutes have a story on it and dark pools over a year ago? Time Magazine cover story too plus daily comments or stories on ZH. I like Michael Lewis but this is strange. Guy writes a book, essentially pimps book on 60 Minutes, 60 Minutes pimps new exchange by smart clean cut Asian kid who never used limit orders at RBC? WTF? The kid says hedge funds were baffled about HFT? Endless fiber installed near Jersey City over the past 10 years. Lewis, 60 Minutes and new exchange CEO tells the world that the Market is Rigged.

Now we have the rigged markets show on CNBC and Bloomberg with these smack downs. Something does not add up here.

I've wondered about this too. We've all known about HFT algos frontrunning the greater market for f'n YEARS now. Is it just because Lewis names names and this Canadian cat has finally come up with a supposedly "clean" alternative?

Same here. How did Lewis' more jocular, less technical book set the world on fire over HFTs a year after Patterson's Darkpools, 5 years after ZH, and after various whitepapers by institutes and doctorates and other articles? As I read through the various Amazon reviews for Lewis' book, one stuck in my mind: 'It seemed like he was paid to write it'.

Suddenly it's an issue, suddenly the FBI are wading in, IPOs are being cancelled and the Squid is squidding out.

Stinks. And I think it goes beyond book pimping Freddie. GS and the FBI are not usually on hand to help promote MIC bashing novelists.

The one phrase keeps turning over and over in my head: 'controlled opposition'.

It can also be that it's "just time." To everything there is a season...blah blah blah. Could be a conspiracy, but it could also be the time was ripe for this shite to hit the fan or for it to stick to the wall...take your pick of metaphor. Either way, conspiracy or timing, it looks like things are starting to unravel.

I posted this earlier on the Russian thread, speculating that there is much more going on behind the scenes that is tying things together into something much bigger.

I think the West knows something is about to drop, and TPTB are worried big time about it. Just look at the headlines the last 48 hours. HFT is bad is all over the place. That is an absolute sea change from the last 5+ years. JPM (which is under investigation) just cancels Russian Payment Transfers in a pre-emptive strike "alledgedly" tied to US sanctions, when US sanctions don't prescribe such actions at all. Now we have Russian retaliation. All this against a backdrop of first Syria meddling, then Ukraine meddling, plus a Russian-China-India nexus potentially against the US Petrodollar. Something tells me all this posturing is in reaction to something bigger yet to come that hasn't been revealed yet. Makes me wonder what Russia has via Snowden that is possibly driving all this. Whatever it is, it must be big enough to make TPTB seriously consider war as an option given all the recent moves.

SDShack, I totally agree. There are things going on under the surface that we can only guess at. But the West's irrational war fever over Ukraine makes no sense. Out of nowhere Ukriane becomes worth World War III? The west had ample warning from the Crimean Parliament that IF NATO went ahead with the violent overthrow of the elected Kiev government, Crimea would declare independence and fight to preserve it's freedom from Kiev. I read this months before NATO's final push to destroy the Kiev government via radical violence and the mass shootings of cops and protestors. YET, western media is pushing a war agenda, Poland is actually calling for war now. Western media is lying in a way I have never seen before. calling the Maidan fascists and the fact that Maidan snipers did the killings, they are calling the entire protest a peaceful non violent protest that was gunned down by Yanakovic and Russian snipers, a fact Estonian and other foreign ministers admit is a lie. Why this mad rush to war? Snowden is releasing daming stuff every week, 122 world leaders from friendly nations have had their every communication spied on, every one. Syrian Al-Qaeda have been supported by Turkish Amry troops, and Turkish government rulers have been caught trying to rig a war against Syria in which Turkey would kill it's own people. NATO death squads have begun to kill Maidan heros who seem to be too fascist now for the IMF leader of Ukraine. The NATO countries are trying to gin up war in Syria and in Ukraine. We can't know what is behind it all, but all these leaked Snowden releases and the leaked phone calls of US agents planning war in Syria and trying to force a war in Ukraine. I suspect the NATO economies are about to implode, and only a world war will bail out the rulers of NATO. It is insane, but the elites have a rational reason for pushing the world to war right at this minute.

My bet is on the pre-announcement of the oncoming crash. They will throw the HFT traders under the bus and place the blame on them. This is the setup to convince the public that QE Taper had nothing to do with it.

The fact is, none of the major exchanges which permit HFT (and depend on it for their survival) can say with certainty they aren’t rigged. That’s because the rigging is being done by others and practically invisible to exchange operators when they conveniently choose not to look.

In a floor exchange model, where carbon based traders and specialists interact, there is a standard and consistent protocol. It’s not perfect, but, for better or worse the protocol gets enforced by all the participants.If someone commits a violation, everyone immediately sees it and it is stopped, because, it’s in everyone’s interest to do so and not be taken advantage of. For example: I guarantee you if some floor trader repeatedly bids size and then pulls his bid back ten times in ten seconds before he can be acted on, some other trader will punch his lights out the eleventh time it happens. In other words, get real or get out of here asshole.

It is possible to transfer the basic model of a floor exchange to a computerized market place. That is a big part of what IEX is doing. But, that’s not what happened elsewhere in the world of HFT market making. Instead, the entire concept of a standard protocol has been abandoned by most electronic exchanges. Now anyone can come in and initiate any trading strategy or market making protocol they like, and they can change their strategy or protocol in a heartbeat any time they like. None of this ever gets seriously reviewed or challenged by the exchanges, even when there is overwhelming independent evidence that some trading practices are not only rigged, but, also illegal. As long as there is money being made by the exchange and all its service intermediaries, everyone just looks the other way.

I like Lewis’ poker game analogy. Pick anyone you like. They all boil down to the same thing. When the primary objective of a market maker is to profit instead of bringing other buyers and sellers together, it’s no longer a legitimate market making function.

With HFT there's cheating in the system, and it is going to impact EVERY order you place, no matter how you place it.

Typically market orders are taken advantage of by your own floor trader or broker, although I have to say, the last few times I've placed market orders through my online broker I've gotten what looked to me like excellent executions by all the info I, as a retail investor, could see.

I know that my broker makes fifty cents a share on me, but I've signed up for that. I did NOT sign up for Joe Blow to take a penny off of every order I place. My broker already provides all the liquidity that I as a retail investor need, HFT does nothing positive for me.

HFT narrows the spread at a HIGHER PRICE. Say you're bidding for the Mona Lisa. You bid a million dollars. Another guy bids 1.1 million. You bid 1.10000001 million. You win. Congratulations, you had a narrow spread. So what, you still paid $100,000 more than you wanted. That's what HFT does, it makes narrow spreads look good when they're NOT.

Just like Storage Wars. Lots of bidders on a storage locker, but some bid just to bid up the price, with no intention of actually winning the locker... let's call them the "pumper". The purpose is to force the winning bidder to pay more then they otherwise would have. Thus diluting the "winners" ability to bid on other later lockers that the "pumper" actually wants. So the "pumper" gets the future locker at a discount because the previous "winner" doesn't have as much cash on hand to bid on the future locker. Kind of a reverse Pump & Dump. More like Pump to shake out the bidders so the pumper can BTFD.

These idiots arguing the market is not rigged clearly have not traded ever. Or if they have ever traded they didnt pay any attention to the order book as they placed trades. It is super obvious if you watch it.

not a dime of mine into this shithole of a market since 2004 when I took out to buy my 1st house. Invest in family and poeple you can look in the eye if there is a loss. Plenty of opprotunities in local market if you learn how to master due dilligence.

Stephanie is BloombergTV's version of bartriromo. Meaning, she is dumb, but at the same time very smart (former I-Banker). She acts the part as nessecary, including acting like she is dumb or smart, when everyone knows she is doing it!

She rarely lets her guests actually answer the question she asks them. She actually thinks the world wants to hear what SHE has to say...rather than just look at her. She may be book smart, but she hasn't got the sense God gave a weed.

Ohh she lets certain people talk. I remember when bloomberg did a "superstars of finance" two week promotion. She fawned over every one of them. But she asked the right question of her favorite dude who ran a fund named after a breed of horse. para from a couple of years ago. But absolutely positively no snarc. telling the true story:

Stephanie: so why did you name name your fund after horse breed "A_______" It is such a beautiful breed of horse!

Hedge fund Dude: Well when I was getting started, the world ran on fax machines. The fed, the treasury, the central banks, the rating agencies, every one had fax machines.

Stephanie: (she knew why, but continued) So what does that have to do with beautiful horses?

Hedge Fund Dude: Well, they were all obliged to send out documents in alphabetical order. So we had up to an hour of trading info over some of the bigger players further down the list.

Stephanie: Well now you can afford to own beautiful horses!

So, basically, the system has been rigged long before they pulled engineers and mathematicians out of laboratories to have them make casino games for the 0.1%

The video clips have gone missing, I've tried a few different browsers (IE, Chrome, firefox) on Win 7 and tried a different Win 7 machine, still missing. all I get is a large blank white square, fyi. I'm guessing that the "debate" still doesn't include any mention of the much bigger rigging (pumping up) by the Fed and the Fed's QE.

Imagine where the market junkies have hung on every word of what the Fed is going to do next instead of focusing on the basics like PE ratios, real GDP forecasts.